Manufacturing sentiment positive in December

Singapore

SINGAPORE'S manufacturing sentiment entered positive territory for the first time in eight months in December - prompting economists to suggest that the worst may be over for the sector that has taken battering from the US-China trade war.

The Purchasing Managers' Index (PMI) went up by 0.3 points in December from the preceding month to record a marginal expansion at 50.1, said the Singapore Institute of Purchasing and Materials Management (SIPMM) on Friday.

A reading above 50 on the index indicates growth.

Economists are welcoming the news as a sign that the manufacturing sector may have bottomed out.

United Overseas Bank economist Barnabas Gan said the latest reading further confirms his view that Singapore's manufacturing and export environment has "largely stabilised, following positive developments from the global trade front".

DBS Group Research senior economist Irvin Seah maintained a positive outlook, but urged caution as there are still risks and uncertainty in the external economic climate.

He said a key factor weighing on the PMI is the ongoing dispute between the United States and China, even though both countries are expected to sign a "Phase One" trade deal on Jan 15.

"It marks the first step towards the pre-trade war period, but we're not there yet because all the tariffs haven't been dismantled; they remain in place for many products," he said.

For example, US tariffs of 25 per cent on US$250 billion worth of Chinese goods are still in force.

Mr Seah added that much depends on how the negotiation process goes.

December's electronics sector PMI almost entered positive territory at 49.9, following a rise of 0.2 points from November, SIPMM noted. Although it is still a below-50 reading, still it is nonetheless the sector's best reading after 14 straight months of contraction.

Mr Seah believes it will surpass 50 in the coming months.

"The trade war prompted many procurement managers to cut back on their orders. I think they have overcut and now have to restock their inventory level," he said.

He added that the emergence and adoption of new technology - including Internet of Things, artificial intelligence (AI) and 5G - are likely to drive demand for electronic components.

OCBC chief economist Selena Ling echoed this view, but cautioned that "the split December picture for the manufacturing and electronics PMIs suggests that the electronics cycle uptick is still trailing for now".

Elsewhere in Asia, manufacturing PMI is also looking up for economies like China, South Korea, Taiwan and Thailand, with the latter three crossing into the black in December. Ms Ling attributed the improvement to "subsiding market uncertainty about US-China trade war subsidies", thanks to the Phase One trade deal.

Barclays' economists called the improvement encouraging, but said whether this points to a strong recovery remains uncertain.

They wrote in a report this week: "The difference in timing for the Chinese New Year may also have brought forward the 'front-loading' effect, as the holiday falls earlier this year than is usual. The timing distortion could lift activity in the near term, but some payback is likely if this is not accompanied by a demand recovery."

The Chinese New Year, usually celebrated in February, falls on Jan 25 this year.